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Defensive Strategy

I recently watched an interview Tony Robbins did with a high powered investor for Tony’s new book, MONEY Master the Game: 7 Simple Steps to Financial Freedom It was interesting to listen to how much emphasis was placed on defence. This has had me thinking about defence over the past few days since listening to the interview.

When I think of the importance of defence, my first reaction is to think of my sporting experiences. From playing to coaching defence is always stressed. Defence can win or lose a game and all good players and coaches recognize this. But how does it impact us in business?

Competition in business forces companies to constantly engage in both offensive and defensive strategies. To grow a business a company either has to take market share from a competitor or create a new market. In the case of taking market share from competitors, companies have to have their defensive strategies in place to maintain that share of the market and fight off competition.

This topic could head in so many different directions when you are talking about defensive strategies. We could continue talking about defensive strategies to protect market share from existing competitors, new competitors, big box stores coming to market, etc., etc., etc. But what has had me thinking about defensive strategies recently is market conditions.

Our company, Kodiak Mountain Stone, operates in both Canada and the US. Our head office and main business run in Alberta where we have a store in Lethbridge and one in Calgary in addition to multiple dealers in our network. Last week the Bank of Canada spoke about the economy. They addressed the low price of oil that has a big impact on Alberta. There are a lot of jobs in Alberta that are dependent on oil and low prices have a huge impact on those jobs. They also addressed the impact that the low interest rates that we have seen for a number of years have had on consumer debt levels. Then they addressed housing prices and indicated that they could be overvalued as much as 10% to 30%. There’s a lot of information there that when you analyze it, consider the potential impact they have on each other and consider the impact that they could have on the economy and directly on the industry we are involved in, it could be scary.

I like to believe that I’m an optimist and trust that things will just work out if you do your part. I also try not to spend much time watching or listening to news because the reality is that I can’t do anything about the price of oil or the fact that homes are overvalued. But in business, while we need to be optimistic, we need to be realists as well so we can prepare both our offensive and defensive strategies. And though I think that we should avoid watching or listening to as much of the news as possible, we need to be aware of what has a personal impact on us or our companies.

So what is the defensive strategy here?

Good, Better, Best
First of all I think you need to have a good handle on projections. For me, that means working close with my CFO. Having a great numbers person to work with is vital in business and I’m fortunate to have one of the best. I’m not a big believer in long term projections. When I first started in business I had to have my 1, 3, 5 and 10 year projections figured out each year. But I soon learned that the further out our projections got, the more time we were wasting. Now that I have some more business experience behind me, I know that I cannot predict accurately where we are going to be ten years from now. We can project three to five years from now but with my experience even in that time frame our company could take a complete 180. But I’m still a believer in projections and personally feel that you should be figuring out your projections for at least the next 3-5 years.
Figuring out your projections should include three scenarios. You need to figure out your good, better and best projections.Best is where your company will be if things really go your way and your company does even better than expected.Better refers to the scenario of what you actually think will happen.Good could be labeled worst by a pessimist because this is the scenario when nothing goes as planned and the wheels fall off.

From a defence point of view, the Good Scenario is the most important scenario to consider. This is the scenario when nothing goes right. Sales are down, expenses are up, problems are mounting. None of us want this scenario to happen, but what if it does. This is the scenario that you must spend time analyzing. If this happens, what will you do? What will your defensive strategy be? How will you survive?

Defence wins games. Being prepared for the worse case scenario and knowing what you will do it you are faced with it is your number one defensive strategy. Once you know what that strategy will be, get out there and work as hard as you can to achieve the Better or Best scenario results.